Sourcing from China without saying, “We’re Sorry.”

According to the official statistics, the U.S. had a $295 billion trade deficit with China last year. That sounds pretty horrible, but here are a few related thoughts to chew on. Economist magazine estimated the total cost to Apple of creating an iPad was about $275. Since it’s assembled in China and sold by the millions here, it may account for as much as $4 billion of that trade deficit.¬† But Economist said, “wait a minute” because the design, engineering, and marketing costs are all based in the U.S., and major components such as chips, displays and memory are made in Japan and Korea. The actual value added by the final Chinese manufacturing is closer to $10, not $275. That’s a huge difference.
Because Apple has U.S. suppliers and a U.S. distribution system, Economist estimates about half of the value of each iPad stays here, generating about $4.1 B in U.S. economic activity from an estimated 15 million units sold.
A similar analysis comes from three authors of an article in the Journal of International Commerce and Economics. They looked at the supply chain for iPods (remember those?) and estimated the product was generating just under 14,000 U.S.-based jobs in design, engineering, management, distribution and retail. The product was also generating about 27,000 overseas jobs, so no big surprise there. However, when the researchers looked at the value of the work, they estimated that about $750 million in earnings were going to U.S.-based workers, and less than half — about $320 million were going abroad.
In short, sourcing from China is sometimes a good business decision — and when it is, you don’t need to apologize for it.

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